Preparing for tomorrow

by Teresa Acklin
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Turkey's milling industry looks to future growth in export, domestic demand.

   By Dr. M.H. Boyacioglu and Melissa Cordonier, Editor

   In 1993-94, Turkey became the world's third largest flour exporter, and if things go as planned, the milling industry hopes Turkey will continue as a trade force. This optimism is based on a strengthening private wheat and milling sector, the promise of larger and more consistent domestic wheat harvests, Turkey's strategic location and prospects for improved trade and economic ties with Europe.

   Turkey's milling industry has undergone significant change in the past several years, based on privatization of grain marketing and mill facilities. The future will be influenced by the integration of Turkey into the European Union and, importantly, by the completion of the Southeast Anatolia Project, a massive multipurpose development project that has been called one of the “seven wonders of the modern world.” The project's irrigation facilities eventually will increase Turkey's wheat production significantly.

   Meanwhile, Turkey's flour millers continue to enjoy a relatively strong domestic market, as cereals are an important staple in the Turkish diet. Turkey's population is about 65 million, and per capita consumption of wheat is between 160 and 200 kilograms, one of the highest rates in the world. The number of affluent urban consumers desiring high quality foods continues to increase, supporting demand for flour and grain-based foods.

   Turkey's flour milling industry does face some challenges. Milling capacity utilization currently stands at only about 50%, the country's economy is plagued by high inflation and other fiscal difficulties, and agronomists are battling a pest that can render wheat unmillable.

    Since 1990, the number of flour mills in Turkey has increased by 19%, to 719 in 1995 from 604. Most of Turkey's mills are private facilities, although the Turkish Grain Board (T.M.O.) still owns one mill and holds shares in another.

   Annual milling capacity since 1990 also has increased, jumping to 20 million tonnes, wheat equivalent, in 1995 from 16 million. Actual flour production generally ranges from 9 million to 10 million tonnes a year; production in 1991 was 9,572,000 tonnes and in 1993 was an estimated 9,868,000 tonnes, according to the State Planning Organization.

   More than half the mills, 472, have a daily capacity of fewer than 100 tonnes; only nine have a daily capacity in excess of 300 tonnes. The Central Anatolia region is home to 216 mills with about 5.9 million tonnes in total annual capacity, and the Marmara region has 176 mills with total capacity of about 4.3 million tonnes.

   Turkish millers produce six standard flour types that are based on maximum ash content (dry matter) ranging from 0.5% to 2%. The largest percentage of total production, 35%, is of Type 3 flour, which has an ash content of 0.65%.

   Gluten quantity and quality are extremely important, and almost all mills determine wet gluten quality manually or automatically. Gluten quality is evaluated using the Zeleny sedimentation test or by measuring the spread of gluten after a predetermined time. Test weights also are used to establish the wheat price.

   At least 50% of Turkey's mills have a test weight apparatus, moisture meters, ash ovens, laboratory sample mills and sedimentation shakers. More than 10% of mills have a complete laboratory with additional equipment, including Falling Number and the Chopin Alveograph. A few mills also have Brabender farino-graphs and extensographs and Chopin rheofermentometers.

   Flour is generally marketed and stored in bags, although bulk storage, already used by large mills, is a growing trend. Packaging generally consists of paper, cotton or polyethylene bags ranging from 1 to 50 kg, with 50-kg cotton or polypropylene predominant. Net flour weight is calculated on a 14.5% moisture basis.

   Flour kinds include bread; cookie or biscuit; durum clear; and baklava and boreklik, a flaky pastry filled with meat, cheese or vegetables. Although a few wholesale bakeries own flour mills, most mills tend to be independent of baking companies, which range from a few industrial bakers concentrated in urban areas to small- and medium-sized bakers. Household use of flour accounts for only 5% of the market. Turkey also has a growing pasta industry that has developed its own active export market.

   The Turkish Millers Association represents the country's flour millers. Established in 1985 as the Ankara Flour Millers Association, the organization later expanded nationally and adopted its current name.

   The group currently has 185 members, of which 137 are active millers representing about 38% of the country's total milling capacity. Other members are traders, educators and industry suppliers.

   Turkey's milling equipment industry is well-developed. As a result, Turkey's mills are continually being modernized.

   Most of Turkey's private mills are owned by families, who have tended to shun consolidation in favor of capacity expansion as a means of achieving greater per unit efficiencies. But some observers predict a major shake out will occur in Turkey's milling industry, given the number of small mills and the country's 50% capacity utilization rate, and many are likely to merge to compete with the larger, more efficient mills, these observers noted.

   Flour is traded freely in the domestic market, and the Turkish government has reduced its involvement in the grain market. Although T.M.O. continues to buy small amounts of wheat, most now is traded in the private market, with the T.M.O. the residual buyer of mostly low quality wheat; T.M.O. purchases in 1995 were less than 0.5% of production, compared with more than 20% in 1991.

   The Agriculture and Rural Affairs Ministry, through T.M.O., still sets support prices. T.M.O. announces its buying and selling prices in effect from the harvest until December. These prices typically are increased monthly to account for Turkey's high inflation rate (106% in 1994).

   T.M.O.'s selling prices usually are about 20% higher than its purchase prices, and the monthly price increases are higher than inflation rates; this makes wheat favored over other investments among speculators. The price increases also cover the costs of carrying inventories for the grain trade; as a result, although production fell short last year, millers could buy wheat from farmers and traders all year.

   T.M.O. also remains involved in grain storage through its ownership of 5 million tonnes, or 70%, of the country's total enclosed grain storage capacity; the sale of T.M.O.'s storage facilities was not included in the first stage of privatization. Turkey also has high-capacity open storage facilities.

   To facilitate the transition to the market economy, T.M.O. developed a system that includes leasing storage space to the private sector and issuing warehouse receipts, which also may be bought and sold on the free market. The system is designed to establish, through the warehouse receipts, an infrastructure for the development of grain futures markets.

   Four major wheat exchanges, Konya, Polatli, Eskisehir and Edirne, offer spot cash markets each working day. The Turkish grain and milling industries are working to establish viable futures markets, but high inflation and other national economic instabilities have hampered the markets' ability to perform effectively to date. Nonetheless, millers are optimistic that efficient futures markets will evolve, providing a way to hedge the price risks of wheat on the private market.

   Domestic transportation of grain and grain products is primarily handled by truck, with 70% of distribution by road, 20% by rail and 10% by water. Because of the increased focus on wheat and flour exports, extensive port renovations also are under way.

   In the past 25 years, Turkey's annual wheat output has virtually doubled, reaching a high of 21 million tonnes in 1993 compared with 10 million in 1970. Production in 1995 was 18.9 million tonnes.

   Turkey uses four wheat classifications: pasta or durum wheat, bread wheat, biscuit or cookie wheat and mixed wheat. Three grades are established for each class based on specific properties; for example, grade specifications for bread wheat consist of test weight, foreign material, damaged kernels, other cereals and kernels of other class or subclass.

   For the past few years, Turkish agronomists have engaged in a major battle against eurygaster, or the wheat bug, which has created problems in certain growing areas. According to a 1993 report by the United Nations Food and Agriculture Organization, 1.3 million hectares in Turkey were contaminated, or about 13% of the 9.8 million planted.

   The wheat bug is a sucking insect that causes drastic changes to the grain and the flour milled from that grain. Even a mild infestation has been reported to produce runny, sticky dough that cannot be used in commercial bread production.

   In 1994, 15% of planted wheat area was treated for eurygaster, and that number was increased in 1995 to 17%. Estimated cost of chemical control is U.S.$10 per ha, but without treatment in epidemic years, damage would reach 90% to 100%.

   Wheat bugs are not the only variable in Turkey's production. Because more than 96% of wheat and barley area is not irrigated, year-to-year production depends on moisture and temperatures.

   The Southeast Anatolia Project (GAP) aims to reduce the variability in wheat output. Consisting of 13 major projects, GAP, a 30-year endeavor with a total cost estimate of U.S.$25 billion, will result in the construction of 21 dams and 17 hydroelectric power plants on the Euphrates and Tigris rivers.

   When the priority irrigation sections are completed, expected in 2005, GAP will provide an irrigation system for 1.7 million ha, 14 times more than the amount currently under irrigation. The underlying goal is to consolidate the region as an agricultural export base.

   Since 1990, Turkey's annual wheat exports have averaged 1.8 million tonnes, ranging from a low of about 25,000 in 1990 to a high of 3.8 million in 1992. Primary customers are Middle East countries and the Asian republics of the former Soviet Union; the latter market could increase notably depending on future credit policy for the republics.

   In fact, export potential overall should expand along with production; according to an economic study, Turkey is projected to maintain an annual exportable wheat surplus of between 6.7 million and 7 million tonnes from 2000 through 2015. By 2020, the surplus may drop to about 5.3 million tonnes, based on an expected 14% surge in domestic consumption in the 2015-2020 period.

   Turkey currently is a net wheat exporter, but some wheat is imported each year, primarily to upgrade the quality of domestic stocks for milling and baking uses. Imports since 1990 have averaged about 600,000 tonnes annually with Bulgaria, the Czech Republic, Germany, Hungary and Italy the main sources.

   T.M.O. still handles all wheat exports. Imports are arranged privately by mills and the grain trade, but T.M.O. allows the private sector to use T.M.O. port and interior silos.

   Turkey's increase in flour exports — to No. 3 in world trade — has been encouraged by government policies that emphasize expanded trade in value-added goods to strengthen the overall economy. For example, the government has encouraged flour exports by exempting wheat imports from tariffs if the value-added processed flour is exported. Turkey's main flour export customers currently are Middle East and North Africa countries.

   Stronger trade with the E.U. also should help to expand Turkey's position in the global wheat and flour markets. Although Turkey is not a member of the E.U., the two have formed a customs union agreement as a step toward full integration, and import tariffs on processed commodities such as flour and pasta gradually will be eliminated on a reciprocal basis.

   Because of Turkey's production potential and low production costs, E.U. countries could become outlets for good-quality Turkish wheat in the future.

   Dr. M. Hikmet Boyacioglu is associate professor in the Department of Food Engineering at Istanbul Technical University. The following also are acknowledged: Ilker Tanik, general secretary, Turkish Millers Association; T.M.O.; Toros Terminal Services, Inc.; and Ova Flour Milling Co., for their assistance with information, statistical data and photographs.